Cashflow and bad contracts lead to company liquidation

A Shropshire-based property development company has fallen into liquidation after building up debt of more than £40,000, it has been reported.

Smart Homes says it was never paid for one of its jobs and couldn’t afford court action to reclaim it.

The Court heard how the company was owed more than £10,000 by one client which failed to pay for the development of one of its building.

The lack of cashflow caused major disruption, meaning Smart Homes was unable to complete other jobs or pay its creditors.

Its liquidators said the company began experiencing difficulties with one of its contracts in December 2016. The client ceased development work in the midst of a project owing some £10,000.

The client then proceeded to replace Smart Homes with a different contractor.

Smart Homes could neither afford to reclaim the money or finance a loan to assist cashflow, and was placed into creditors’ voluntary liquidation in August.

A director can choose to wind up a company if it cannot afford to pay its debts or if a majority of shareholders agree with the decision. Once wound up, the company must stop doing business and employing people.

There are three types of liquidation: creditors’ voluntary liquidation, compulsory liquidation, or a members’ voluntary liquidation.